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IMPROVEMENT BONDS OF 1993 <br />PAGE TWO <br />associated with the Costa development which I am assuming will be <br />sold over the initial three years of the bond issue, I have built <br />those assumptions into the structure of this issue. As those lots <br />sell, assessments will be paid in full and the City would have to <br />reinvest the proceeds at a rate less than what the assessment <br />interest rate is being charged to the property owners, under current <br />interest conditions. If rates to not increase, we would start <br />generating a negative cash flow and could have to make up some <br />deficits from City funds on hand before we finance these cost. By <br />building in the prepayment assumptions, we have structured the issue <br />to minimize this risk. The down -side to this scenario is that should <br />the lots not sell over the three year period as assumed, the City <br />would have to finance the debt service cost from funds on hand. <br />However, the income stream would eventually catch up and generate <br />more than sufficient revenues to repay the advancing of these funds. <br />Therefore, I feel this structuring provides the greatest economic <br />advantage to the City. <br />It is important to emphasize that no tax levy will be associated with <br />this bond issue. I have also reviewed this proposal with Bob Voto <br />and he is agreement with the concept put forth. <br />After reviewing the detailed recommendations, please contact me with <br />any comments or question you may have. It will be my recommendation <br />that we issue the 1993 Improvement Bonds as proposed. <br />Page 5 <br />